First, a fast refresher on VCNS and its sister funds. Early in 2018, Vanguard launched a household of asset allocation ETFs that can help you maintain a diversified portfolio utilizing a single product. They’re the ETF model of a balanced mutual fund. Every holds seven underlying ETFs—three for bonds, 4 for equities—overlaying the Canadian, U.S. and worldwide markets. That works out to greater than 18,000 particular person bonds and 13,000 particular person shares from around the globe, which is about as diversified as one can get with out being a pension fund.
Paradoxically, Bernie, constructing a portfolio from the three ETFs you point out would truly be far much less diversified than utilizing VCNS. It will embody solely large-cap Canadian and U.S. shares, with no worldwide publicity in any respect. And it will embody solely short-term Canadian company bonds, whereas VCNS contains bonds of all maturities, each authorities and company, from all developed nations.
Utilizing a single balanced ETF in your RRIF additionally makes managing your investments a breeze. You by no means must rebalance, as a result of that’s accomplished for you. They rebalance “every now and then on the discretion of the sub-advisor,” in line with Vanguard. All it’s worthwhile to do is ensure you often promote sufficient shares to liberate the money in your required RRIF withdrawals.
That mentioned, there are some good causes for utilizing particular person ETFs fairly than a balanced fund. For one, you’ll have extra flexibility in setting your asset allocation. VCNS holds 60% bonds, and the opposite Vanguard asset allocation ETFs maintain 0%, 20%, 40%, 50% or 60%. If you’d like your asset allocation to be, say, 45% bonds and 55% shares, you may even obtain it by placing half your account right into a fund with a 40% bond allocation and the opposite half right into a fund with a 50% bond allocation (this is able to obtain the midpoint of 45% in bonds).
When you’re an skilled DIY investor, you may as well use particular person ETFs to construct a extra tax-efficient portfolio throughout a number of accounts. For instance, you may wish to favour equities in your TFSA and bonds in your RRIF, which you’ll be able to’t do when you use just one balanced fund.
For many buyers who need a broadly diversified, easy-to-manage portfolio at a particularly low price, it’s exhausting to beat the Vanguard asset allocation ETFs and related choices from iShares, BMO and Horizons. Embrace the simplicity.
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